- 12 -
interest in the partnership", pursuant to section 1.704-
1(b)(3)(i), Income Tax Regs. Respondent disagrees,
however, with the estate's assertion that the partners each
have a 50-percent interest in the partnership, and instead
argues that James has a 100-percent interest in the
partnership. Thus, respondent contends that all of the
income reported by the animal farm business for the years
1990 through 1993 should be allocated to the estate. In
support thereof, respondent notes that, "up to 1994, James
had contributed almost $1,000,000 more in capital to the
partnership than Darwin." Respondent further notes that,
"under applicable state law, James is entitled to a
liquidation distribution of the amount by which his
contributions exceed Darwin's before Darwin is entitled to
any distributions." Finally, respondent notes that "the
value of the partnership's assets in excess of its
liabilities amounted to less than $150,000". Therefore,
according to respondent, James bore the entire economic
benefit and burden of the partnership income during the
years in question and should be allocated all of the
partnership income for the years in issue.
In effect, respondent acknowledges that the protective
notice of deficiency issued to Darwin and his wife in which
respondent adjusts their income for 1990, 1991, and 1993
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011